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TMI Blog1981 (9) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... f the partners, the ITO did not give any opportunity to the assessee before drawing an adverse inference that the partnership is not genuine. An appeal filed against this order by the department was dismissed by the Tribunal. The matter was, therefore, decided afresh by the ITO, after giving the assessee an opportunity to cross-examine the partners, whose statements were recorded. The ITO again came to the conclusion that the partnership is not genuine and this order has been confirmed by the AAC. Hence, the present appeals by the assessee. Registration for the assessment year 1975-76 has been refused for the reasons set out in the order for the assessment year 1974-75. 3. The assessee-firm is carrying on the business of dealing in teak-w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers are totally ignorant about the business activities of the firm and even about their capital in the firm as well as sources of the capital. It is surprising that the partners do not even know about the gifts which are stated to have been given to them and introduced as their capital in the firm. It is strange as to how the gift has been treated as complete even without there being formal acceptance of the same by the donees. It is further noticed that in the case of Smt. Smita D. Shah, she is not even aware that any of her ornaments had been sold which have been shown as such in her name. Thus from the above facts it is clear that the firm is not genuinely constituted and hence the ITO is fully justified in refusing registration to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of the capital contribution and the particulars relating to the business. Smt. Smita D. Shah was 26 years old and has studied up to Inter Arts. She could not also give the details about the activities of the firm and the capital contribution. 5. At this stage, it will be useful to refer to the ruling relied upon by the learned counsel for the assessee. In CIT v. Gokaldas Hukumchand [1943] 11 ITR 462 (Bom.), the assessee and his minor son were partners in a firm. Subsequently a second firm was started in which the assessee was not a partner but his two minor sons were partners along with others. The firm was registered under section 26A of the Indian income-tax Act, 1922. But the income of the minor sons received from the second firm wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be aware of the details of the partnership business, but it cannot be reasonably inferred from his ignorance about the details that the partnership was not genuine and that the fact that one of the partners had not withdrawn his share of the profits and allowed them to accumulate is also no ground for inferring that the partnership was not genuine. The position has been summarised thus at pages 1016 and 1017 of Kanga and Palkhivala's Law and Practice of Income-tax, 7th edition, Vol. I. "There may be no fraud or malafides on the part of the taxpayers, yet even a simulate arrangement may justify a refusal to recognise the firm. But bare suspicion will not be sufficient to justify the inference of fact that a partnership is not genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually benamidars for Shri Mahesh D. Shah who is actually carrying on the business, This aspect is now covered by the Explanation to section 185(1) which, among other things, provides that a firm shall not be regarded as a genuine firm, if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, a benamidar of another partner to whom he does not stand in the relationship of spouse or minor child. To take advantage of the Explanation, the department must positively show that the capital of the remaining partners actually came from Shri Mahesh D. Shah and that the profits are also finding their way to his. There is absolutely no evidence to support any such inference. 7. It now ..... X X X X Extracts X X X X X X X X Extracts X X X X
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